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IT Due Diligence: Technology, Software Industry

January 9, 2024 Brad Gerick

When a private equity firm is evaluating an acquisition target, they perform thorough due diligence before making any decisions.

One part of the due diligence process that tends to come later in the process is information technology (IT) due diligence. While important in any industry, this practice is particularly apropos for companies in the technology software industry.

“For companies that have kept up, they can have a significant competitive advantage,” BluWave Head of Technology Houston Slatton says. “But for companies that haven’t embraced technology or managed it well, it can become a liability or a risk to their operations.”

READ MORE: What is Commercial Due Diligence?

Due Diligence for Software Companies

What is the IT Due Diligence Process?

Here are the top-level steps involved with IT due diligence:

Preparation
Information Gathering
Asset Evaluation
Contract Review
Risk and Opportunity Identification
Recommendations

READ MORE: What is IT Due Diligence?

IT Due Diligence for Technology Software Companies

Here are how each of those steps could apply to due diligence being conducted on software companies:

Information Gathering

Gathering information is a rigorous process involving deep dives into the software’s architecture, databases and development practices. This phase assesses the company’s technical assets and the quality of its codebase, exploring aspects like scalability, maintainability and technical debt.

Asset Evaluation

In asset evaluation, the focus shifts to the software itself. What is the state of the product’s lifecycle? Are the technologies used up-to-date and supported? The evaluation also reviews the company’s intellectual property portfolio for patents, trademarks and copyrights that protect its innovations.

IT, Software Strategy Resources

Contract Review

The contract review scrutinizes agreements with customers, vendors and partners. For software companies, this could involve licensing agreements, open-source software dependencies and third-party integrations that are essential for the company’s products and services.

Risk and Opportunity Identification

Identifying risks requires an understanding of the regulatory environment, especially for data privacy and security. What are the potential compliance liabilities? Conversely, where are the opportunities for innovation or market expansion? This step often reveals how IT can be a growth enabler or a liability.

“If you don’t use the tools well – if you don’t maintain them – a good IT diligence report is going to highlight those issues, but also will highlight those as recommendations or opportunities to drive value in the business post-close,” Slatton says.

READ MORE: How To Hire an Interim CTO

Recommendations

The final recommendations are a strategic mix of immediate actions and long-term plans. For a technology software company, this might include advice on enhancing security, improving system integration or investing in new technologies to keep the company ahead of the curve.

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The IT due diligence process is integral to understanding the true value of a technology software company. It’s not just about identifying what works and what doesn’t – it’s about uncovering how the technology can drive the company forward.

Private equity firms that don’t perform thorough IT due diligence may find themselves facing unforeseen challenges down the line. But those that prioritize this step can use it to guide their investment strategy, uncover new opportunities, and ultimately, ensure that their acquisition is set up for success in the rapidly evolving tech landscape.

READ MORE: Why Mergers & Acquisitions Fail

For expert guidance through the IT due diligence process, reach out to BluWave. Our research and operations teams can connect you with the best IT due diligence experts in the industry, handpicked for your situation.

“The specialized providers in the Business Builders’ Network have in-house employees who focus on doing these types of assessments for investors,” Slatton says. “They’re seasoned technology professionals who know how to quickly assess an organization through the lens of private equity firms and other acquirers.”

Start a project with us today and we’ll provide a short list of service providers in less than 24 hours.

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Portcos Show Outsize Growth Among Inc. 5000 Awardees

December 1, 2023 Brad Gerick

Private Equity and the American Economy

The private equity industry has been a vital component of the American economy for years. PE firms invest in companies to improve their businesses and increase their value.

BluWave, the Business Builders’ Network serving the world’s most proactive business builders, analyzed the 2023 Inc. 5000 list of America’s fastest-growing companies to understand the role the private equity industry is playing among those organizations.

BluWave’s analysis revealed that more than 550 private equity-backed companies were recognized in the Inc. 5000, growing exceptionally fast and contributing extraordinarily to job growth.

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A Major Representation

The private equity industry played a meaningful role in the growth and development of Inc. 5000 awardees with approximately 11 percent – or more than 550 of the Inc. 5000 – of the companies on the list being backed by private equity.

The 11 percent of the Inc. 5000 list that is PE-backed accounts for 558 companies.

HCI Equity Partners, a leading lower-middle market private equity firm headquartered in Washington, D.C., serves as an example of one such PE firm. HCI had four of its portfolio companies recognized on the Inc. 5000 list.

These companies provide valued products and services to the food, preventative maintenance, protective gear and hospitality markets. The diversity of industries represented also illustrates the wide range of end markets benefiting from private equity investments.

“We are immensely proud to have four of our portfolio companies recognized in the Inc. 5000,” said Doug McCormick, Managing Partner and Chief Investment Officer at HCI Equity Partners. “It’s a privilege to support the growth and development of such amazing businesses, while providing value to our stakeholders and creating jobs that are built to last.”

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Exceptional Growth

BluWave’s analysis also found that private equity-backed companies grew remarkably fast, with an average growth rate of 480 percent in total revenue over the three-year review period.

BluWave’s ongoing series of Private Equity Insights Reports have revealed that the PE industry has been able to fuel significant growth in large part due to the industry’s meaningful provisioning of strategic resources. This helps their portfolio companies expand in more accelerated, predictable and confident ways. BluWave’s Q3 2023 Insights report highlighted that more than 75 percent of all projects conducted by the private equity industry in 2023 were related to creating value in their portfolio companies.

“Through thoughtful partnership, HCI has added value across multiple areas of our organization,” said Scott Milberg, CEO of AmerCareRoyal. “In addition to providing access to capital and strategic support, the operational engagement they provide helps us deliver transformational initiatives successfully and accelerate our growth.”

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A Major Job-Creation Engine

The influence of PE-backed companies extends beyond revenue growth; they are also significant contributors to job creation.

The BluWave analysis found that private equity-backed Inc. 5000 companies added more than 800,000 jobs over the past three years. While these companies represent approximately 11 percent of the Inc. 5000, they accounted for 64 percent of the 1.2 million jobs added by Inc. 5000 awardees over the past three years.

Furthermore, these companies have been instrumental in bolstering sectors crucial to the U.S. economy, such as software, business products & services, health services, and IT services, adding more than 130,000 jobs in these sectors alone.

BluWave’s Private Equity Insight reports have revealed that the PE industry has invested heavily in human resources over the past several years. The data shows that human resources has been the number-one focus area in private equity in each of 2019, 2020, 2021, 2022 and YTD 2023. The Q3 2023 Private Equity Insights report showed surging human resources activity, with approximately 50 percent of all projects in Q3 2023 related to human resources. The report also illustrated that four of the top five value creation use cases related to building and improving their portfolio company teams. A copy of the latest report can be requested here.

“We’re not surprised by the job-creation insights highlighted by our analysis. We see every
day how private equity firms focus on building great teams with long-term success in mind,” BluWave founder and CEO Sean Mooney said. “It’s fascinating getting a front-row seat as we help them build and grow.”

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Portco Collaboration Significantly Boosts Project Success Rates

November 28, 2023 Brad Gerick

An analysis of BluWave’s propriety data reveals that having a portfolio company stakeholder present during the project scoping and service provider-selection process meaningfully increases the likelihood of a private equity firm’s project moving forward. It also improves overall satisfaction with outcomes.

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More Likely To Proceed

BluWave’s analysis of more than 1,500 private equity firm projects shows an 80 percent increase in the likelihood of a portfolio company moving forward with the PE firm’s desired initiative.

This data indicates that a portfolio company is twice as likely to align with the private equity firm’s objectives if a portco decision-maker is involved during the project’s scoping and service provider-selection process. This holds true across industries, company sizes and service types.

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Better Outcomes

The 80 percent overall increase in project progression also leads to better and more satisfying outcomes for both the private equity firm and portfolio company.

In post-engagement surveys, overall satisfaction rates also increased by 5 percent when a portco contact was involved in the project scoping and service provider-selection process. This increase in satisfaction is based on overall project rating scores capture by BluWave.

Set up a scoping call with our research and operations team – and make sure to invite your key portfolio company stakeholders – and they’ll provide a short list of exact-fit resources within 24 hours.

Making Life Easy for Human Capital Leaders

November 17, 2023 Brad Gerick

BluWave understands the urgency and sensitivity around the work human capital executives perform. That’s why we provide a curated suite of resources specifically designed for HR leaders to drive unprecedented value in their organizations.

CASE STUDY: Diversifying Talent in a Digital-First Consumer Products Startup

Our Business Builders’ Network not only understands your unique challenges but also provides tailored, bespoke solutions for talent leadership.

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CASE STUDY: Controller with Leadership Skills for Resilient Growth

From specialized recruitment that targets niche roles to interim leadership that ensures your business doesn’t miss a beat during transitions; from mid-level staffing strategies that fortify your organizational structure to outsourced HR services that let you focus on core business functions — BluWave already knows the third-party service provider or consultant you need.

You can learn more about these services in this one-pager we prepared for talent leaders.

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Set up a scoping call with our resources and operations team, and they’ll connect you with a select list of exact-fit resources within a single business day.

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Jay Hernandez of Raymond James: M&A Process Best Practices

November 15, 2023 Brad Gerick

Jay Hernandez recently joined the Karma School of Business podcast, sharing his insights into the dynamic world of private equity.

In his discussion with host Sean Mooney, Hernandez, an investment banker focused on industrial technology, talked best practices in mergers and acquisitions.

He emphasized the importance or preparation, understanding buyer psyche and building trust and reputation.

Here are some insights from their conversation.

Listen To the Episode

3 Takeaways from Jay

1. M&A Preparation

Hernandez emphasized the importance of thorough preparation before entering the market. This involves not just understanding one’s own business but also being ready for the intense scrutiny that comes with merger and acquisition processes.

“It’s never too early to prepare for that event,” Hernandez said. “You always have to be prepared.”

Mooney agreed: “The more you do that, the more luck you tend to have in business and life, but also M&A processes.”

READ MORE: Why Mergers and Acquisitions Fail

Hernandez also stressed the importance of talking to key players early in the process.

“Engage your advisors, engage your experts well in advance. And it could be even a year or two in advance,” Hernandez said.

Mooney said that doing so can ensure that all aspects of the business are aligned and ready for the sale process.

“You should probably be talking with an investment banker right now so that when that light is green, you’re getting an early start,” he said.

Download Latest PE Insights Report

2. Understanding Buyer Psyche

Hernandez also pointed out the increased depth and detail in buyers’ inquiries within M&As.

“The psyche of the participants has changed, and particularly on the buyers, and where that’s changed a lot is the areas that they’re digging into and the depth of which they’re digging into,” he said.

Mooney underscored the need for sellers to understand and anticipate the buyer’s perspective. He highlighted the diligence PE firms conduct in preparing for M&A processes.

“Private equity firms are spending more time making sure things are absolutely buttoned up so that they’re prepared to move as quickly as possible through an M&A process,” he said.

3. Building Trust and Reputation

Finally, Hernandez emphasized the necessity for buyers to maintain integrity and straightforwardness during the M&A process.

“You need to make sure that you’re doing it right for the company that you’re looking at, because at the same time, you’re going to be their partner going forward,” he said.

Mooney cautioned about the fragility of reputation.

“It takes a lifetime to build a reputation and literally 30 seconds to ruin it,” he said.

Hernandez added that “99.999 percent of the groups that we deal with and the buyers that we deal with are straight shooters and do exactly what they’re going to say.”

Start Your Project with BluWave

Hernandez’s entire conversation with Mooney offers unique insight into the world of mergers and acquisitions from an investment banking perspective. (Stay tuned until the end for a time- and stress-saving life hack about cooking the perfect steak.)

When you’re done listening, head to the main BluWave podcast page for more conversations with business leaders.

Revolutionizing Healthcare: Roles of AI, Machine Learning

November 14, 2023 Brad Gerick

The integration of artificial intelligence (AI) and machine learning in healthcare is poised to revolutionize the industry by enhancing efficiency, transforming medical education and augmenting the role of healthcare professionals.

The latest Private Equity Insights Report from BluWave shows strong interest in AI data analytics as well as robust activity in the healthcare industry.

LISTEN: The Window of Opportunity: Healthcare and PE Insights

Scott Becker, founder of Becker’s Healthcare and Partner at McGuireWoods, discussed these topics with BluWave CEO and Founder Sean Mooney on the Karma School of Business podcast.

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Efficiency in Healthcare Processes

Becker’s insights into the role of AI in healthcare reveal a significant shift toward efficiency, particularly in areas like revenue cycle management.

He spoke to the remarkable reduction in workforce requirements.

“You’ve got places that have 1,500 employees. They can get down to 1,000 employees with using AI,” he said.

This reduction is not about diminishing the human element but rather reallocating it. By automating routine and repetitive tasks, AI allows healthcare professionals to focus their expertise on more complex and nuanced cases.

This shift is not just a matter of numbers; it represents a fundamental change in how healthcare operations are managed. Becker elaborated on the challenges faced in staffing these roles.

“A lot of those jobs are relatively lower-wage jobs where the turnover was tremendous,” he added.

This also speaks to the importance of AI in creating a more stable and focused workforce.

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Transformation of Medical Education

Becker also said that the medical education system is in dire need of an update.

“Medical school is still designed pre-internet,” he said. “A specialist isn’t out of school until they’re in their early thirties.”

This not only prolongs the training period but also imposes significant financial and mental burdens on aspiring medical professionals.

“You’ve got this horribly inefficient medical school program and residency training program,” he added.

By leveraging artificial intelligence for educational purposes, the learning process can be significantly streamlined, reducing both time and cost for students.

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Augmentation of Medical Professional Roles

There are many use cases for existing medical professionals as well. Mooney offered one example.

“They’re going to have these amazing copilots that will help do all those kind of brain sequences,” he said.

Mooney views AI as a tool to assist, rather than replace, human expertise. AI’s ability to process vast amounts of data and identify patterns can significantly enhance the diagnostic process, allowing medical professionals to focus on critical decision-making and patient care.

“I don’t think you could ever turn them over to the robots, at least in our visible future,” Mooney added.

The integration of AI promises to elevate the quality of healthcare, making it more precise, personalized and effective.

Start Your Healthcare Project

While the potential of AI in healthcare is immense, challenges such as resistance to change and vested interests could impede its adoption. Its future prospects, however, are promising.

The integration of AI and machine learning in healthcare represents a significant shift toward more efficient, effective and personalized care.

The invite-only Business Builders’ Network is full of AI experts who work with healthcare businesses on a regular basis.

Connect with our research and operations team, and they’ll provide a short list of tailor-made resources within 24 hours.

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Listen to all the episodes from the KSOB podcast.

Why Private Equity Invests in People for Growth

November 3, 2023 Brad Gerick

Human capital is a driving force for growth in private equity. A recent BluWave-hosted webinar delved into three leading trends in this service area:

The rise in human capital investments
The importance of specialized recruiters
The value of interim executives

Here are some insights into these topics from Account Executive Evan Garoutte and Research and Operations Consultant Taylor Lee.

Watch the Webinar Replay

Human Capital Emphasis

The trend of investing in people for growth continues to gain traction.

READ MORE: Why Hire an Interim CFO

“Human capital activity has been steadily growing and reached an all-time high in Q3 of this year, accounting for 49 percent of all activity coming through the BluWave network,” Garoutte said. “It’s the number one trend in the industry.”

This reflects a 20 percent increase year-over-year, underscoring the importance of investing in talent for organizational growth and value creation.

Download the Latest Q Insights Report

Using Specialized Recruiters

Engaging specialized recruiters is crucial for efficiently filling both executive and non-executive positions, particularly during growth phases.

“They stay up to date on market trends, salary range and emerging skill sets, which is extremely valuable. The knowledge allows them to identify and attract top talent who possess the right qualifications and of course, and most important would be a cultural fit to the organization.”

Value of Interim Executives

Interim executives, especially in pivotal roles like CFOs, CEOs and CHROs, provide stability and continuity during transition periods, crisis management and special projects.

“PE firms have found value in being able to try before they buy. And we’ve seen interims convert to full-time employees about a third of the time internally,” Lee said. “There’s just value in confirming that this person can positively see our portfolio companies in the right direction as well as confirm that they’re a culture fit.”

READ MORE: Why Hire an Interim CTO

The discussion underscored the critical role of human capital in driving growth, indicating the various strategies that private equity firms and their portfolio companies can employ.

BluWave’s invite-only network of human capital resources works with PE firms daily to fill needs related to human capital, as well as a wide array of other service areas.

Contact our research and operations team for your next project and they’ll provide a short list of exact-fit service providers within 24 hours.

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Scott Estill of Lancor: Human Capital’s Evolving Role in Private Equity

November 1, 2023 Brad Gerick

Scott Estill recently joined the Karma School of Business podcast, sharing his insights into the dynamic world of private equity, with a focus on human capital.

In a captivating discussion with host Sean Mooney, Estill, a seasoned professional with a wealth of experience in executive search and private equity, discussed the transformative trends shaping the landscape of talent acquisition and management.

He emphasized the essence of human relationships, the mutual selection process in recruitment and the necessity of navigating technological changes with agility and adaptability.

Here are some pivotal insights from their conversation.

Listen To the Episode

3 Takeaways from Scott

1. The Importance of Human Capital in Private Equity

Private equity’s approach to human capital has evolved, placing a stronger emphasis on the value of talent and human relationships in driving business success.

READ MORE: Hire an Interim CHRO

Estill articulated this evolution, emphasizing that the real value lies in the talent that propels the business forward.

“What matters more is what’s your right to win. It’s not necessarily about picking the right weighted average cost of capital or whatever it is for the inputs of the model and how much debt to put on a business. It’s the people,” Estill said.

Mooney also highlighted the industry’s shift toward a more human-centric approach.

“This whole idea of this openness to get a candidate to be wanting to be with you and saying, ‘Call anyone you want.’ That’s something that is relatively new in private equity, but incredibly important,” he added.

Download Latest PE Insights Report

2. The Shift in Approach: From Assessment to Mutual Selection

The recruitment process in private equity is transforming into a mutual selection process where both parties assess each other.

“You do need to show the human side. That’s sort of why operating partners exist. And we do a ton of operating partner work because you need the EQ-IQ combination,” Estill said. “But I think painting with a wide brush, if PE firms can be more and more human about what it is to work with them and why they value that talent, it makes the talent of course feel good and it differentiates them from the competitors.”

Mooney said private equity has always been, appropriately, private in the way it operates. But that is shifting.

“One of the biggest evolutions that I think private equity is going through right now is the first word in private equity has always been private. It’s all about kind of holding your cards tight and trying to be this kind of vessel and it’ll drive great outcomes,” he said. “Increasingly, there’s things going on like brand formation. … There’s heads of human capital or HR that are not only looking outwardly but inwardly.”

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3. Embracing Technological Changes

In an era marked by rapid technological advancements, the ability to adapt and evolve is crucial. Estill underscored the necessity of embracing these changes.

“The only thing that’s consistent is change. So it’s going to happen. And so as much as we think we’re so smart and we’re trying to get ahead of the curve, we’re already dinosaurs,” he said.

Mooney emphasized the transformative potential of technology in reshaping the industry.

“If you lean into it and embrace it, it can be a good thing,” he said. “But it’s scary in the meantime.”

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Estill’s insights illuminate the evolving landscape of private equity, underscoring the pivotal role of human capital, the transformative nature of the recruitment process and the imperative of adaptability in the face of technological advancements.

The entire conversation with Mooney offers nuanced perspectives essential for navigating the complexities of private equity in a human-centric manner.

When you’re done listening, head to the main BluWave podcast page for more conversations with business leaders.

Andrew Greenberg of GVC: Specialization, AI, Adaptability in Investment Banking

October 31, 2023 Brad Gerick

Andrew Greenberg recently joined the Karma School of Business podcast, sharing his insights into the ever-evolving world of investment banking.

In a discussion with host Sean Mooney, Greenberg – Chief Executive Officer of Greenberg Variations Capital – delved deep into the transformative trends shaping the landscape of investment banking and capital markets. He articulated the significance of specialization, the revolutionary impact of artificial intelligence (AI) and the timeless essence of adaptability in navigating the industry’s dynamic terrains.

Here are some pivotal insights gleaned from their enriching dialogue.

Listen To the Episode

3 Takeaways from Andrew

1. Specialization and Efficiency in Investment Banking

The investment baking industry has witnessed a paradigm shift, transitioning from a broader approach to a nuanced strategy emphasizing specialization and efficiency.

Greenberg discussed this evolution, highlighting the emergence of a new era where the focus is on being exceptional at fewer things to drive insightful outcomes.

“I think that directionally, the process of selling businesses will continue to evolve in the direction of applying expertise to prospective buyers, the company and the value proposition as opposed to the brute force of the marketing exercise,” Greenberg said.

Mooney agreed with Greenberg’s point on expertise.

“I think what you really appropriately pointed out is we’re in this new era and now it’s about specialization,” he said, “and it’s about being better at fewer things and really driving insights to drive outcomes.”

Download Latest PE Insights Report

2. The Impact of Artificial Intelligence (AI)

Artificial intelligence stands at the forefront of this transformation, heralded as a monumental efficiency enhancer. Both Mooney and Greenberg agree on its pivotal role in propelling the market toward unprecedented levels of efficiency, aligning seamlessly with the principles of efficient market theory.

“Artificial intelligence has become a big part of the discussion, and I think you and I agree that there’s both steak and sizzle there,” Greenberg said.

BluWave recently published a white paper discussing the crucial steps businesses must take before implementing new AI tools. Mooney believes it’s primed to be the world’s next revolutionary broad-access tool.

“With the advent of AI, this is going to be the greatest efficiency enhancer in my mind since the advent of the modern internet in 1995 with Netscape,” Mooney said. “I 100 percent agree that the world is going to be playing this game and it’s going to be, like anything else, harder and harder to find alpha. But it’s still going to be really good compared to most other things.”

Download the AI Journey White Paper

3. The Importance of Adaptability

Navigating the dynamic realms of investment banking necessitates a spirit of adaptability and openness to diverse opportunities. Greenberg advocated for embracing various experiences and being open to different possibilities.

“As things cross your field of vision, have a disposition to try different things,” Greenberg said. “My advice for younger people would be where possible, try to say yes.

Mooney said he could relate to the power of adaptability.

“You think about the things that we do, they require a lot of time. It’s a lot of effort,” Mooney said. “One of the things that I’m always thinking about as I’ve gained a little bit of perspective is, how do I find little life hacks that are not only even just business, but just things that make my life a little easier?”

Start Your Project with BluWave

Greenberg’s insights underscore the pivotal role of specialization, the transformative potential of artificial intelligence and the enduring value of adaptability in navigating the industry’s multifaceted landscape.

The conversation with Mooney is a trove of wisdom, offering nuanced perspectives that are essential for navigating the complexities of investment banking and capital markets.

When you’re done listening, head to the main BluWave podcast page for more conversations with business leaders.

Cash Flow: Importance for Businesses, Portfolio Companies

October 20, 2023 Brad Gerick

Why might a good company fail? It’s often as simple as running out of cash.

That’s why it’s so important that business leaders not only understand what cash flow is but also keep a close eye on it.

BluWave CEO and founder Sean Mooney touched on this topic with Gabe Mesanza, partner at Huron Capital, on the Karma School of Business podcast.

Listen to the Full Episode

Let’s take a closer look at what Mooney and Mesanza had to say about the importance of cash flow, and how private equity firms think about this crucial metric as it relates to their portfolio companies.

A calculator and a stack of coins in a bluish tinted photo. In the background there are accounting papers with numbers on them. In the foreground there's a bar chart with a line graph.

READ MORE: Why Hire an Interim CFO?

What is Cash Flow?

Cash flow is the net amount of cash coming into and going out of a business. It has a substantial impact on liquidity.

Without enough cash on hand, a company won’t be able to pay its expenses, ultimately forcing it to shut down.

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A Fundamental Beacon for Businesses

When times get tough – especially because of the economy – many businesses act more conservatively. Private equity firms, however, often take advantage of these challenging situations by boosting value creation.

Mesanza said that starts with focusing on fundamentals.

“The basic is focus on cash. Just understand your cash position because that is really the lifeblood of the company,” he said. “If you’re struggling with cash, then you really can’t think about much else, very honestly. That is all-consuming, and it leads you to short-term decisions that are often counter to the long-term goals of the company. That to me is first, second, third. In a crisis, focus on cash.”

READ MORE: Interim CFO for a Financial Crisis

Why Cash Flow is Overlooked and Misunderstood

When a business is performing well, executives are even less likely to focus on cash flow. This, Mesanza said, is a mistake.

“We’ve seen a couple of examples of that here recently. Having worked for large companies, even sometimes we ran into really good executives that ran business units and you ask the question of cash, they never even thought about it,” he shared. “Cash was just something that was there and it was swept at the end of the day. When you needed to do a project, you went and asked for the money and it showed up. The idea of cash is not something that is natural for a lot of people, and it’s surprising the number of people who mistake EBITDA for cash.”

Listen to the Full Episode

Cash Flow Forecasting and Management

Mooney, who had about 20 years of private equity experience before starting BluWave, said that neglecting cash flow can be a fatal mistake.

“I learned very early on good companies don’t necessarily go out of business because they’re good or bad, they go out of business because they run out of cash,” he said.

Instead, he suggested, business leaders should forecast cash flow on a 13-week basis – equivalent to a quarter – week-to-week and monitor progress. Mesanza agreed with this approach.

“One of the first things we do is a 13-week cash flow. It’s interesting for founders, a lot of their personal finances are intertwined with the company, a lot of their personal expenses flow through the company, whether it’s a car or whatever the case is,” Mesanza said. “The moment that you start adding debt to a company and you have quarterly debt payments that you have to make, boy, that really becomes some different level of conversation.”

Resources for Finance Leaders

How Private Equity Looks at Cash Flow

Private equity firms perform substantial due diligence before acquiring a new business. When they do move forward with a purchase, it’s because they see significant growth potential.

“The change to being owned by private equity is that we really only want to put in equity or cash into a company to grow it, to build it, to buy other things,” Mesanza said. “We don’t want to put cash in to run the operations.”

These aren’t just lessons for PE firms and their portcos, though. Any business can reap the benefits of healthy accounting practices coupled with a growth mindset.

The Business Builders’ Network is full of third-party service providers who have helped businesses across various industries accelerate their value creation.

Contact the BluWave research and operations team to set up your initial scoping call. They’ll match you with an exact-fit resource from the invite-only network within a single business day.

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Interim Executive Best Practices: Trends in Short-Term Leadership Roles

October 16, 2023 Brad Gerick

Why should a business use an interim executive?

It can be a great way to bridge the gap between full-time hires, give a potential long-term hire a “tryout,” train up less experienced candidates, guide a company through a crisis or even prepare a business for sale.

Whatever the case, interim CFOs, CMOs, CHROs, COOs and the like can be money well invested.

To get the most out of these temporary executives, though, businesses need to have a plan.

Hire an Experienced Interim Executive

BluWave’s Richmond Donnelly discussed the best practices of using interim C-suite talent on a webinar with Mark Steenhoek, Managing Director, Operations, of The Stephens Group and Bryan West, Managing Director, Talent at Resurgens Technology Partners.

Here are some of the actionable insights you can apply to your business’s interim executive strategy.

A diverse group of business leaders dressed in suits looking at papers around a table in a conference room. The room is also well-lit.

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When, How To Work with Interim Executives

While there are many situations in which an interim executive might be a good fit, the panelists outlined the most common ones their firms face.

“There’s good reasons and bad reasons that we would hire. I’d say that we find ourselves more in the camp with the bad reasons, and I’d describe those as two,” Steenhoek said. “It’s a crisis situation. Somebody leaves…or it’s a situation where we started looking in this a little bit more post-COVID in that we would have an open CFO role and then it takes nine to 12 months to fill it just because the market was so tight and difficult to find that perfect fit.”

West added that he is a big fan of the “try before you buy” approach. He said he’s encouraged by the number of his peers who are like-minded.

“That was actually reassuring,” he said. “That’s a great way to build a relationship and we’re always open to that.”

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Top Interim CXO Use Cases

Whatever the use case, interim leadership is consistently one of the most-used services in the Business Builders’ Network, according to BluWave’s quarterly insights.

Based on the proprietary data collected from working with hundreds of private equity firms and thousands of leading businesses, the two most-used interim executives are CFOs and CHROs.

Read more about how each of these crucial roles is used:

Based on a live poll of webinar attendees, most PE firms fill multiple interim executive roles per year, taking 3-6 months to do so.

At BluWave, however, we connect you with a short list of exact-fit candidates within a single business day of your initial scoping call.

Why Hire an Interim Executive?

Beyond broader use cases, PE firms and their businesses usually have a specific set of tasks they need this temporary hire to complete.

“We’re able to go in and very specifically orient to on a project basis like, ‘Hey, does this person have experience or the skills to knock out kind of a more tactical list of things?’” West said.

He said that while the overall goal may be the same as when you bring in a full-time C-suite hire, the selection criteria is “quite different” based on what needs to get done.

Echoing BluWave data, Steenhoek said interim CFOs are their most common interim executive hires. The tasks each one is expected to accomplish tend to be the same, with variations depending on the company’s industry.

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Interim Executive Criteria, Selection

Moving beyond the to-do list of items to accomplish, what is it that the world’s top PE firms and businesses look for in interim executives themselves?

West said that having done so many hirings in the past makes it easier to pick up on red flags in candidates. Beyond that, he relies on experience to choose the right person.

“We need somebody that’s been there, done that,” he said. “We don’t want to burn six months of time or three to six months of time on building a function.”

Steenhoek agreed, saying that is his top priority, too.

“I think the second would be, especially if it’s a leadership thing…radical transparency,” he said. “You’re just going to be able to really work together hand-in-hand, which equates to low-ego. They know what they’re there for.”

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Setting Interim Executives Up for Success

Once someone is in the seat, the team that hired the individual plays a significant role in their success. How do these leaders set their interim hires up to get the job done?

“There is the team integration and the business integration [and] the CEO is the primary quarterback there, assuming it’s a direct report to the CEO,” he said. “But as far as project-managing the task list…that more often than not happens at our level.”

Steenhoek added two things that he believes are essential in these situations.

“I think really clear communication around what you need and alignment that they’re oriented and really focused on what you tasked them to do,” Steenhoek said. “The second is just being really clear on alignment related to, Are they interim? Are they permanent?”

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BluWave is here to connect you with best-in-class, niche-specific interim executives to help with crisis management, leadership transitions, “try before you buy” and other relevant scenarios.

“Reach out to us at any point if we can ever be supportive with anything you all need,” Donnelly said. “We’re here to help you win.”

Contact our research and operations team to scope your needs and get quickly connected with the service provider you need in less than one business day.

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How To Raise Prices Strategically with Sales Team Buy-In

October 12, 2023 Brad Gerick

When input costs increase, businesses must adjust their pricing strategy accordingly. But it’s not as simple as passing along those costs to the consumer.

First, the sales team must buy in to the new strategy. (This can be particularly challenging for private equity firms and their portfolio companies.) Secondly, you must do so in a way that doesn’t scare off the customer.

But as BluWave CEO and founder Sean Mooney discussed with ParkerGale’s Cici Zheng on the Karma School of Business podcast, those fears are often unfounded when you dig a little deeper.

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Let’s learn more from these two about how to strategically raise prices, whatever business and industry you’re in.

Challenges of Raising Prices

Sales Team Buy-In

“I think our portfolio companies might be hesitant to think about price increases or think about value-based pricing,” Zheng said.

Mooney agreed, calling it the “number one area that’s underutilized” by private equity firms that BluWave supports.

Quarterly Report: More Pricing Insights

“In part because it gets the most resistance from the portfolio companies, particularly from sales leadership,” he added. “Because it’s really scary if you’re a head of sales and you say you got to raise price.”

Zheng said this is best overcome by generating belief in the company’s products or services.

“If you think about the amount of investment that we’re putting in, in an ideal world, your best-fit customers are also valuing what that is and you’re able to get a value-based price for it,” Zheng said. “At the end of the day, it comes back to, if we really feel [that] the types of companies we invest in have great products, great NPS scores, great retention scores.”

Retaining Customers

Related to resistance from the sales team is often a fear that customers will be scared off by a higher price point. And the thought of being the one to share that increase can be daunting.

But once again, belief in the product is a great weapon in this situation.

“What are our product managers and heads of engineering and engineering talent doing? They’re continuing to invest in that product,” Zheng said. “Hopefully we’re able to convey this to the sales team who have to be at the front line to convey it to the customer of like these are not price increases for the sake of price increases.”

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Value-Based Pricing

The beauty of value-based pricing is that businesses attract customers who are willing to pay for a superior product. Portfolio companies owned by ParkerGale and like-minded private equity firms aren’t courting bargain hunters anyway.

Zheng said that this high-quality approach “justifies what we think this product actually provides to you. And if you were really looking for the cheapest price, then we wouldn’t be having this conversation because that’s usually not the positioning that we have.”

After all, if the business is working so hard to create a quality product or service, why wouldn’t they expect customers to be willing to pay more?

“We’re going and improving the products and updating the modules and features and all these things,” Zheng said. “Are we on the flip side also making sure we’re getting that value-based pricing from our customers?”

Knowing that pricing isn’t the top priority for their target customers gives portfolio companies more flexibility, dousing the fear of scaring them off.

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Data-Driven Pricing Strategies

No matter how much a business believes in its products and services, it can’t blindly adjust its prices and hope for the best. They must make data-based decisions.

One way to do this is by paying close attention to macroeconomic factors.

“We’re thinking a lot more intentionally about pricing and making sure that we’re not just staying flat, we’re looking at what’s going on in the market,” Zheng said.

There are other metrics that can influence a pricing strategy, though. According to Zheng, NPS scores and retention data are strong indicators of whether a business has a “very solid product.”

For private equity firms, much of this crucial research can be done before a company is ever acquired.

Zheng said that during the commercial due diligence phase, ParkerGale often deploys voice of customer studies to learn what are customers’ top three key purchase criteria. Pricing seldom makes the list.

“Especially when we’re selling enterprise software, these are mission-critical tools and products,” Zheng said. “The customer is not looking for the cheapest one.”

READ MORE: What is Commercial Due Diligence?

In-depth analysis can also help companies learn when they have taken their increases too far, allowing them to adjust back down.

“I would argue if you’re never losing on price, then you’re priced too low. You should be losing a certain percentage of your deals on price,” Zheng said. “But if you can collect the data on the other side, if you’re doing win-loss analysis and calls like that, then you should be able to say, ‘OK, we are hearing now that we have enough actual data, not anecdata, to say we are actually losing on price too much, and so therefore we need to adjust.’”

Benefits of Pricing Consultants

As meticulous as private equity firms and other top business leaders are about their companies, a world-class pricing strategy often requires world-class help.

Mooney mentioned how underutilized pricing resources are, but that’s not because they’re in short supply.

The Business Builders’ Network is full of pricing experts who work on an industry-specific basis. They know the questions to ask, the data to analyze and the levers to pull to make sure you’re setting prices with confidence.

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“We’re in contact with the service providers in our network nearly every day,” Co-Head of Research and Operations Keenan Kolinsky said. “Before clients even reach out, we already know which providers will likely be best suited for their pricing project. That way, we can hit the ground running as soon as we scope a client’s need.”

These third-party resources are experts in segmenting customers, identifying value drivers, developing measurement tools and pricing structures, conducting sensitivity analyses and more.

They’re on standby to help you determine your target customer base’s key decision factors, willingness to pay, preferences and perceptions.

Lastly, they’ll present this information – with speed and accuracy – in a way that’s actionable for your business.

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Contact our research and operations team today, and tap into the same invite-only network that the world’s best PE firms – from ParkerGale and beyond – use to set their pricing strategies.

Within a single business day, you’ll be connected to a shortlist of options that will be chosen for your exact situation and vertical.